Eric Hilt on Debates in Economic History and the Cliometric Revolution

Eric Hilt is a professor of economics and economic historian at Wellesley College. He joins Macro Musings to discuss his new journal article Economic History, Historical Analysis, and the “New History of Capitalism,” which examines the growing debate between economic historians and historians of capitalism over issues such as slavery and economic growth. Eric also shares his thoughts on the “Cliometric Revolution,” which transformed the way many economic historians conduct their analysis.

Read the full episode transcript:

Note: While transcripts are lightly edited, they are not rigorously proofed for accuracy. If you notice an error, please reach out to [email protected].

David Beckworth: Eric, welcome to the show.

Eric Hilt: Thanks for having me.

Beckworth: Oh, it's great to have you on. I read the article. I loved it. I've dabbled a little bit in economic history, know enough to be dangerous.

Hilt: Excellent.

Beckworth: So it's great to get a real economic historian on the show.

Hilt: I'll do my best.

Beckworth: You can set us straight. Let me begin like I do with all guests and ask, how did you get into economics and specifically into economic history?

Hilt: Well, I studied economics in college and while I was in college I decided to pursue graduate study in economics. But I didn't know about the field of economic history at the time. So it wasn't until I was actually in graduate school when I was exposed to the work of economic historians that I fell in love with the field of economic history and sort of made it my intellectual home.

Beckworth: Okay. Now your article is on this debate, which I just became aware of by reading the Chronicle of Higher Education article. That debate really centers around the issue of slavery and how important it was to capitalism, American and Great Britain. We can cut to the chase and say, the history of capitalism folks, the historians say it was very important. Economic historians like you say, not so much. Because you do the counterfactual analysis, but we're going to get into this in more details as we go through it. But your article covers more than just slavery. It covers finance risk. You've written on that area as well. And you also mentioned the history of economic, of conservative thought. Is that right?

Hilt: That's right. So the works on slavery have attracted a great deal of attention because they're so controversial, but they're part of a much broader trend in the field of history, which is, especially within the last 10 years returning to economic topics. But these historians are working mostly in isolation from the academic field of economic history and they're not really engaging with the scholarship of economic historians.

Beckworth: Yeah. And then your article is interesting. You mentioned that early on they were working together, the early editions of the Journal of Economic History had historians and economic historians working together, right?

Hilt: That's right. Well, I don't know about working together. They were in separate departments, but they were all contributing to the field.

Beckworth: Okay.

Hilt: And so the field of economic history is as old as the academic field of economics and the academic field of history. When you look at early volumes of journals, like the Quarterly Journal of Economics or the Journal of Political Economy from the years 1900 to 1930, you'll see lots of economic history papers written in them and they don't look that different from economic history papers written by historians. They're not super quantitative, they're not super theoretical, they're just nice descriptive sort of economic history papers. And so the beginnings of the field are ones in which there's both historians and economists sort of working on using more or less the same methods and sort of pursuing similar questions in their work.

Beckworth: All right. Well, let's spend a little time on the field of economic history for our listeners. This is Macro Musings, spend a lot of time on macroeconomics, but I think to really get a good grasp, a complete grasp of macroeconomics, you have to understand economic history. So let's talk about it and one of the things you come across as you read in this field is the term the cliometric revolution. So what was the cliometric revolution?

The Cliometric Revolution and Revisiting Slavery

Hilt: Okay. So the cliometric metric revolution is something that occurred sometime around the 1960s when some brash, then young economic historians, particularly Robert Fogel and Douglass North sort of came onto the scene and revolutionized the study of economic history by introducing economic theory and also rigorous quantitative analysis into their work. Okay. I described them as brash, consciously because a lot of what they were doing was actually attacking the sort of traditional work of historians and economic historians that came before them and showing what they were doing was not well-founded theoretically or was even sort of incorrect, based on sort of anecdotal evidence or something like that.

Beckworth: So you pronounced the term correctly? I did not. It's cliometrics?

Hilt: Clio. Yeah. Clio the muse of history.

Beckworth: So I apologize for saying clio, but clio. So the term cliometric, I'm just curious why that term as opposed to say the econometric revolution.

Hilt: Well, so econometrics is economic measurement and cliometrics is historical measurement then.

Beckworth: Okay.

Hilt: So that's the idea. And so I think at the time they were sometimes called like the new economic historians, but they also sort of adopted at some point the name cliometrics or the cliometrics historians.

Beckworth: Okay. Interesting.

Hilt: Yeah.

Beckworth: Yeah.

Hilt: So that's the origin of that.

Beckworth: Well, let's take a look at some of the big names. You mentioned Robert Fogel. As a youngster I had to read *Time on the Cross.*

Hilt: Oh, very good.

Beckworth: Is the classic slavery and that was really, can't remember the first one that really applied quantitative analysis to the issue of slavery.

Hilt: They weren't the first, but they were by far the most thorough and comprehensive that had ever been done. So, slavery is a topic that has been the focus of a lot of research by economic historians and some of the earliest sort of cliometric work was done in the '50s actually by sort of young economic historians who proceeded Fogel and Engerman. But that's the big sort of field changing contribution. Time on the Cross.

Beckworth: And that sparked the big debate, right?

Hilt: A huge debate. It was... Yes.

Beckworth: Generated out of that.

Hilt: Yeah, absolutely. Absolutely. So, a lot of it was extremely controversial at the time. It ignited this very large literature on slavery that in a sense continues today. So scholars looked at what they were doing and sort of critically thought about how we think about slavery, how we measure its effects and sort of ran with it. Scholars like Gavin Wright at Stanford and others have taken that analysis in fascinating new directions.

Beckworth: All right. So just briefly on that book, *Time on the Cross* is I recall, one of the big insights is that slavery was profitable. Is that right?

Hilt: Yes.

Beckworth: What were some of the other big insights or ideas they generated?

Hilt: Okay. They not only see slavery as profitable, but they see sort of slave owners as rational profit maximizing managers, which refuted and sort of earlier literature that held that slavery was a sort of moribund, inefficient, sort of backwards institution. They show, in fact it's perfectly compatible with profit maximization and efficient operations. There's a great deal of detail of what's responsible for that. They sort of view slavery as a form of labor organization and they in particular show that you get these big productivity gains from economies of scale.

Hilt: So the very large plantations with large numbers of slaves that could use this gang system and profit from economies of scale were shown in their view using some pretty sophisticated economic analysis to be the most productive. Now those findings have sort of come under attack. Other scholars have contested this finding that it's all about economies of scale and labor organization. When you're measuring productivity in slavery, you encounter some very difficult problems. For example, the largest slave plantations also tended to be on the very best land. And if you don't properly account for that fact, the fact that they have better land, you're going to see, you're going to attribute productivity to their scale when it's really about like the quality of the land input. So there's very, very complicated issues there. And this is all subject to a great deal of debate over the years.

Beckworth: I imagine just getting the data itself is challenging.

Hilt: That's right. Absolutely. Absolutely. Collecting it from the census manuscripts and other archival records is a huge undertaking and that's why that was such a groundbreaking book.

Beckworth: All right, so that was in 1974.

Hilt: Yeah.

Beckworth: I also read later and this in grad school, Fogel's book *Without Consent or Contract*, 1989 and my understanding is this was kind of a reply to some of the criticisms he got the book. But one of the thing that really resonated, at least I can still remember from reading this book, and it goes back to what you're saying, slavery was profitable. It wasn't going to go away soon on its own.

Hilt: That's right.

Beckworth: And he kind of at the end of the book, I think he tells the story what would have happened if there had not been a civil war or if the South had won the civil war and he tells his story. Look, slavery would have taken a long time to have gone away, maybe the South would have been a very powerful country. He talks about maybe Cuba, being annexed. So is that still a standard understanding?

Hilt: So if you're interested in what would happen if the civil war had not unfolded the way it did. An interesting country to look at is Brazil, right? Which was the largest sort of Western hemisphere slave power and continued to use slavery to have slavery until the, I believe it was 1888 when it was finally abolished. I think in either that book or in other work I've read, there's a conjecture that, that's probably around the time when slavery would have been abandoned in the U.S. That the similar forces that were operating in Brazil would have sort of seen similar effects in the US. So that counterfactual, what if the civil war had not been won by the North or hadn't happened, is an interesting one.

Hilt: There are other counterfactuals that I think are also in some ways more interesting and it relates to the questions that the historians of capitalism are pursuing, and include, for example, what would have happened if the constitution of the United States had prohibited slavery? Right? How different would our economic history have been over the years? Now this, this illustrates the limits of counterfactuals because arguably if the constitution had prohibited slavery, then the Southern States would not have joined the new nation, right? So they wouldn't have ratified the constitution. But if we can imagine that they were somehow induced to join, how does our history look different if the constitution prohibits slavery? It's very interesting.

Beckworth: Robert Fogel is also known for a famous study and this is where the counterfactual is really important. He had the study where he looked at and questioned whether railroads were really that important to the economic development of the US? Because that's kind of a standard maybe I won't say a myth, but kind of a common thought, railroads transformed America. And he went back and said they weren't that important. Is that right?

Hilt: That's right. So, this is one of these traditional views of economic history that the cliometricians including Fogel, would carefully analyze quantitatively and ultimately refused. So there's this view, it was expressed in different ways that the railroads were essential for American economic development, that there were these spillovers between railroads and other sectors, that the railroads were sort of responsible for industrial takeoff and so on. And so what Fogel did, was he specified a counterfactual world of the United States without the railroads.

Hilt: Okay. And so to him, that meant specifying like, what does a transportation network look like without railroads? And he decided that, that would probably be the canals that were in place. And then proposed canals that were never built because the railroad sort of superseded them. So, we have a transportation network based on canals and also rivers and other kinds of navigable waterways. Based on his comparisons between the world in which we don't have railroads, but we have these canals and the world in which we do have railroads, he concluded that the railroads didn't actually contribute that much to economic growth. That it was a few percentage points of GDP higher as a result. That was a startling finding, at the time that they're just not that important relative to this counterfactual world without them.

Beckworth: It is, even now it's kind of mind blowing to think about.

Hilt: Yeah.

Beckworth: So let's look at a few other big names. Let's look at Gavin Wright. So I read his book *Old South, New South* in college. That was a fascinating look at the history of the US South. The US South had essentially a separated labor market from the rest of the country from end of the Civil War to World War II. Literally it was a basket backwards economies. It was a mess.

Hilt: Yes.

Beckworth: Until the war, the new deal, forced integration, forced more mobility across those lines. He is also written on the slavery recently as he mentioned. So what are his contributions? What are his big findings on slavery in the South?

The Economics of Slavery in the South

Hilt: So he's known for, I think rethinking the role of slavery or the purpose of slavery in the American economy. So, rather than seeing slavery as a form of work organization, he sort of views it as a system of property rights and follows his consequences from that, which are very interesting and something that Fogel and Engerman didn't really anticipate. So for example, he argues that the South suffered in its economic development because of the incentives created by the property system of slavery in the following sense. So if you're a large property owner, let's say here in Washington D.C. you benefit from the development of transportation infrastructure, from schools being built and so on. And so you support that, right? And the reason you support that is as a large property owner, the value of your land holdings reflect the capitalized value of all these amenities around them and they go up in value if there's economic development. So you are a supporter of economic development if you're a big landowner. Okay?

Hilt: In the American South, your wealth is not coming from land, but it's coming from slaves. And the distinctive thing about slaves and your property rights in these human beings is that human beings are not tied to a particular place. It's an extremely mobile asset. And indeed there is an active national market in human beings, in slaves. So that if there's economic development happening around you, schools built roads being built, factories being built, your slaves do not appreciate in value. The bulk of your value is not affected by that. Right? And so as a slave owner, it's not like you necessarily oppose economic development, but you're more or less indifferent to it. Right? And so the incentives of the wealthy individuals in a slave economy are very different from the incentives of property owners in a non-slave holding economy. That affects the path of economic development and in particular affects the development of institutions in those economies.

Beckworth: That's one reason the South was so backward-

Hilt: Absolutely. That's right.

Beckworth: Okay.

Hilt: You have a backwards educational system, you have sort of weak political institutions. You don't have sort of broad access to economic opportunity because the political economy of slavery and these property rights in humans being sort of leads to that outcome.

Beckworth: So it not only was a huge burden on the slaves, but it was a drain on the development of the South all those years and putting them on a path way behind the rest of the country.

Hilt: That's right. There's an interesting irony. Slavery made a small number of wealthy slave owners extremely wealthy, but it made the entire region much poorer than it otherwise would have been.

Beckworth: Fascinating. We've had some other economic historians on air. Hugh Rockoff, Michael Bordo.

Hilt: Great.

Beckworth: So who else would you add to your list of people that you really like to follow, the big names in economic history?

Hilt: Well, this is my field, so the list is too long to go through.

Beckworth: Okay.

Hilt: But some interesting people your listeners may not know about or they may... And I think are worth following. People like Claudia Goldin of Harvard, Barry Eichengreen of Berkeley. Joel Mokyr of Northwestern, who writes on the industrial revolution. Stanley Engerman, who was Bob Fogel's coauthor. Peter Temin, who's now in retirement but was at MIT for a long time and Naomi Lamoreaux of Yale.

Beckworth: Claudia Goldin had that book on education-

Hilt: That's right. So a lot of her work is about the role of women in the economy and about education. But she's written very broadly. She's an excellent economic historian.

Beckworth: Yeah. If you take an economic history course, you find her writings throughout the course.

Hilt: Yeah.

Beckworth: Peter Temin, you mentioned him. I'll bring him up. He's written on the Great Depression, but he's also written about the Roman market economy. I had a guest on the show, Mark Koyama and we talked about the economics and macroeconomics of ancient Rome. And we talked about this book really fascinating research into the Roman economy was like.

Hilt: Many economic historians have extremely broad interests and are fascinating people to talk to for sure.

Beckworth: Yeah. And that book I think is a good example of this because if you read the book, if you've never had economics, he goes through kind of does the econ 101 as he gets into each part of that book.

Hilt: Yeah.

Beckworth: That was very useful. If I were still teaching, I would probably use that in a principles class to help motivate. Okay. Let's talk a little more about the field. So how is the field doing today to build up economic history? How would you-

The Current Field of Economic History

Hilt: Well, I would describe it as a field that is flourishing.

Beckworth: Okay.

Hilt: Not that I'm unbiased. But there's several reasons for this. Firstly, there's been some recent technological changes that have made economic history research easier and also more powerful. So here I'm thinking of the accessibility of historical sources online and things, sources like Google books. It was once necessary to actually visit a relatively small number of huge libraries to do economic research on certain subjects and now many of them are online, which is amazing. But also there's the availability of digitized census micro data. So the census micro data all the way up to 1940, the ones that survive are available and accessible to scholars who want to study things like migration and mobility and so on.

Hilt: There's also technological developments like the development of GIS software tools, enabling people to study, all kinds of geographical questions. But I also think there's a general interest in historical questions among economists that is growing. Partly that's a recognition of these advances that I described. But also the recent financial crisis has made macroeconomists and financial economists aware of the value of studying financial history, for example. I think also the mainstream of economics has become aware of the power of analytical concepts like institutions in their analysis. And that naturally lends itself to historical analysis. The concept of econ economic institutions was sort of developed and popularized by Douglass North, one of the other great economic historians.

Beckworth: So would you put Daron Acemoglu's work in economic history or economic growth?

Hilt: So that's a really interesting question. I think there's many different ways to be an economic historian. There's kind of a spectrum. At one end of the spectrum there's analysis that sort of uses history as a laboratory to test economic theory. At another end of the spectrum there's people who want to study history for its own stake or are focusing on historical economic change. The ladder is a little bit more history. The former is a little bit more economics. I would say I don't think Daron considers himself an economic historian. I think his contributions on institutions and economic growth have ignited a lot of interesting economic history. But he's kind of in a way more the former that on the other end of the spectrum where he's much more of an economist than an economic historian.

Hilt: Peter Temin, who was his colleague at MIT for many years and has since retired, wrote an essay about economic history at MIT in which he sort of critiques this new trend, uh, both within his department and in the field of economics where economists take up historical topics without really being serious about economic history. I don't mean to endorse that particular criticism of Daron but there is this dispute of how much of a historian do you want to be.

Beckworth: Okay. And just for listeners who don't know Daron, he's written a lot on the importance of institutions for economic growth. I mean, in the spirit of North, right?

Hilt: That's right. And taken a strong sort of empirical approach.

Beckworth: Yeah.

Hilt: Yeah, that's right.

Beckworth: And he's done a lot of interesting work on institutions, a lot of... Dealing with causality issues, implication issues.

Hilt: That's right.

Beckworth: Unlike others before him. So if I'm a young graduate student, I'm thinking what field to go into, what you're telling me is that econ history is a great place to go. A lot of job prospects, a lot of great ideas, lots of material out there for me.

Hilt: I would say it's very intellectually exciting and it's very important to pursue questions that are intellectually interesting in your work.

Beckworth: Okay. Let me ask another maybe less important question. One that still I've wondered about, when I took the class, we used a book by Jeremy Atack and the Passell. I forget Passell's first name. 1994, *A New Economic View of American History.*

Hilt: That's right.

Beckworth: Really neat book.

Hilt: Terrific book.

Beckworth: But it never was updated and all the other economic country books were kind of weak compared to that, with all due respect out there. But that was a really neat book. Are there textbooks like that now or they updated it or anything like that at all?

Hilt: I don't know if Jeremy's got a new edition of his book or not since that one. It's a significant burden to produce these books. When you read them, they're amazing intellectual achievements with so much work in them and I think Jeremy's probably more focused on producing new research than on updating his book. But yeah, there's several really good ones. Hugh Rockoff is the coauthor and Huson Kane is another one. So those are the three big ones that I know of and they're all different and sort of complement each other in different ways. And anybody who's sort of interested in economic history I think should get all three of them and you can look at them because they sort of summarize the literature on the main topics in their own interesting ways.

Beckworth: Right. I shouldn't have said weak.

Hilt: No. It's fine.

Beckworth: But compared to Jeremy Atack and Peter Passell's book, that one was just more rigorous and a lot more, you see the analysis and maybe advanced level, econ history students find it more beneficial. But you're right, Hugh Rockoff's book's really good with money and banking issues and stuff like that. Okay. One last question on this field. How far back in time do you have to go for it to be history?

Hilt: That's a really interesting question. Sometimes I talk to graduate students who are working on topics related to the 1970s or '80s, and they ask me, can I call myself a historian? Right? And so I actually... This may surprise you and this reflects the view of Claudia Goldin, which she wants said to me, which is that economic history is more about an analytical approach than it is about a particular period of time. Okay? So I think it's actually possible to write about the 19th century in a very non historical way. And it's possible to write about almost the present in a very historical way, right? So really good economic history puts economic phenomena in a historical perspective. That's the value that... And appreciates the particular historical context, whether it's a recent one or a very old one.

Hilt: That's the value of economic history. So it's not about the time period. I think something from the '70s and '80s that can absolutely be economic history and as I said, really, really old data doesn't necessarily... The analysis of old data, doesn't necessarily make it economic history or at least good economic history.

Beckworth: All right. Let's move on then to the history of capitalism. So tell us what is the history of capitalism? How's their approach different? What motivates them?

The History of Capitalism

Hilt: Okay. So the cliometrics revolution marked a point around the 1960s when historians started to turn away from economic topics. Partly it may have been that the cliometricians were sort of driving them out by their insistence on the use of quantitative analysis and economic theory, but also partly the field of history underwent what's called the historical turn where they just sort of became interested in... Sorry, the cultural turn, where they became interested in cultural topics and less interested in economic topics.

Hilt: Okay. So that's reversing itself now as especially young scholars in history are turning back to economic topics in their research. It may be motivated by the recent financial crisis and the issues it raises, it may also be motivated by other economic changes the rise in inequality over the past few decades or something like this. So, many of these scholars kind of see themselves as activists and frame their work as social criticism. So that makes it very different from what most economic historians are trying to do, which is a little bit more modest and just focused on explaining historical economic behavior. So they've chosen the name history of capitalism, I think, not because they want to write the history of capitalism, which they're actually not doing, but because in a critical way they want to call attention to the role of capitalism and economic development.

Hilt: Okay. Now, I think that this is a potentially really exciting development. It's great to see historians returning to economic topics, and I think there's a lot of potential complementarities between what they're doing and what economic historians have been doing. But they're not really engaging with this extensive literature written by economic historians on their topics and the quality of their scholarship is kind of suffering as a result.

Beckworth: Why do you think that's the case? Why not go back and read the literature and the findings of the economic historians?

Hilt: Well, okay, so I think there's a few reasons. Firstly, the separation, the gap between the two fields is immense. The work of historians is very different from the work of economists. And so imagine a graduate student who's interested in writing about say slavery to return the topic we were mentioning before and wants to know what economic historians have written about it. Well, that young scholar is going to encounter basically a whole shelf full of books of different ages and different using different methods and untold numbers of articles. It's very difficult for someone like that to probably distinguish among those different contributions and discern what represents the state of knowledge today, what's been discredited, what's more persuasive than others? And the fact that they have no training and economics probably, makes it even more difficult. So as an outsider, I think it's hard to actually see into the economics literature without actually speaking to an economist.

Hilt: There's another problem though, which is that there are some scholars in the field of history who sort of treat economists as these straw men that they sort of write in opposition to. And they probably think of economists as these right-wing tools of the capitalist patriarchy or whatever and don't think that it's sort of valuable to look at the work of economists. I don't think that's a majority view, but that's definitely there.

Beckworth: So maybe they are both intimidated by some of the hardcore analysis economists do and I think maybe even if it wasn't hard math, just that it's such a whole different field.

Hilt: That' right.

Beckworth: Look in the shelf because you mentioned, to be tougher historian. I came across this quote from a historian, Eric Foner, and he had this to say, and this was in the article about the debate between the history of capitalism scholars and economic historians. He's going off on economists for a different reason. When economists gripe about historians retreating from economics, historians offer a counter narrative, "The problem is the economists leapt history for statistical model building." Says Eric Foner. A history of 19th century America at Columbia university. "History for them is just a source of numbers, a source of data to throw into their equations."

Hilt: So I think that illustrates the problem we're having very well. For him, I think it's very difficult to comprehend what economists who study history are doing. I don't mean to imply that he's incapable of comprehending it. He's is a very, very impressive historian and a great intellect. But if you have no background in quantitative analysis, you can't appreciate the insights that can be found from quantitative analysis. Right? So, the work of historians on economic topics tends not to be quantitative at all. Right? It's a sort of narrative-based approach. It's very interesting. It uses its own insights but the lack of any kind of quantitative component to it, I think, potentially limited in some ways and also more importantly, prevents them from seeing the value of the insights that can come from quantitative analysis. Right.

Beckworth: Yeah. It's very interesting, reading this and one thing you point out in your article is historians tend to be very much against the humorous and knee jerk reaction against counterfactual analysis. They're almost allergic to it.

Hilt: That's right.

Beckworth: And what you point out though is that they are implicitly doing it anyways, but they don't admit it if they don't see it.

Hilt: That's right. So, I think there is an aversion to counterfactuals among historians that's often pretty strong. I think part of the problem is there's a genre of counterfactual history, kind of along the lines that we were talking about earlier, where the South wins, the civil war, the civil war doesn't happen. To really pursue counterfactual worlds like that is to make so many assumptions that it's rendered kind of intellectually incoherent very quickly. Right? I think too many historians, that's what counterfactuals mean is to talk about a world where a baby Hitler is killed or the civil war doesn't happen or something like that. Whereas counterfactual analysis is actually in general, a lot more subtle, that it's in fact the flip side to causal statements. When you say A causes B, what you mean is not A means B doesn't happen, right?

Beckworth: Right.

Hilt: There's an implied counterfactual on any causal statement. So when historians make statements about these different elements of causation occurring over history, they are making counterfactual statements. And one of the critiques I have of their work is that they're not thinking through the implications of those counterfactual statements very carefully. So this is something that economists have become very good at that, that counterfactual analysis is part of. But most of the economists do. It's we are not constructing counterfactual worlds, but we're using empirical analysis and comparing cases where something is present and something is absent in order to try to get at causation empirically.

Beckworth: Right. So our counterfactual analysis is on the margin.

Hilt: That's right.

Beckworth: It's one variable in or out as opposed to these great sweeping narratives were Hitler is never born, stuff like that. Right. And that's interesting. So maybe they've been jaded or they're reluctant to go down that path explicitly because they've seen these great narratives written about how Germany won World War II.

Hilt: That's right. That's my theory anyway. But counterfactual analysis encompasses much more than that and could potentially aid their work and the insights that they produce from their work if they thought about it carefully.

Beckworth: Yeah. Okay. Well, let's move on to some of the books in the history of capitalism building. Let's move to the ones on slavery. Your article covers several fields, but let's look at slavery because this is the most contentious area and it was the focus of the Chronicle of Higher Education. And the book by Edward Baptist 2014 book, *The Half Has Never Been Told: Slavery and the Making of American Capitalism.* And a key part of this book was slavery was key to the development of American capitalism.

Slavery and American Capitalism

Hilt: That's right.

Beckworth: So tell us about this book and what it argues. What were its shortcomings?

Hilt: Well, so it's a really interesting book and it illustrates, I think both the best and the worst of the new history of capitalism literature. So it wants to call attention to the central role of slavery and coercion in our economic past. It's sort of framed as a reputation against arguments by historians or others that the slave economy was somehow separate from the rest of the economy or slavery was not actually that important for our economic development. And so what I think is really nice about it is it uses the narratives of escape slaves and a lot of archival data to sort of enable you to see the world through the eyes of enslaved people and what they endured. It's very effecting in a way. It's something that I think a really good historian is in a unique position to do, but at the same time, the book presents a fair amount of economic analysis and a lot of it, and I think this relates to problems across disciplines in understanding and translating historical quantitative methods. But a lot of it is deeply misleading.

Hilt: For example, in his effort to demonstrate the centrality of slavery for economic activity, he makes the claim that slavery effectively accounted for half of American GDP in 1836. Okay. And so the way that he arrived at that number is by starting with the size of the cotton crop, right? The value of the cotton crop relative to GDP. And then adding to it, the value of the trade in slaves, the inputs used on slave plantations, the consumer goods purchased by slave owners and on, and on and on and on. All of those additional numbers that are added represent a form of double or even triple counting, right? The value of the cotton crop represents value added in cotton, and it already counts all the inputs used in cotton.

Beckworth: Right.

Hilt: Right? And same is true for an in a deeper sense for the consumption could purchase by a slave owners. Slaves were not of official GDP statistics for that period. And arguably they trade in slaves belongs there, but it's not included in the denominator in his number. So he's artificially inflating and on and on and on. So it's a very misleading calculation, that's just designed to show that slavery was very important. I don't think anyone would dispute that slavery was very important and there's other ways to show it that wouldn't involve sort of abusing GDP statistics. I sort of wished that he had just sat down with an economist and just talked about different ways to try to measure the importance of slavery. But clearly he did not do that. So I've thought about taking that passage from his book and assigning it to Econ 101 students in GDP economics-

Beckworth: It's funny you mentioned that, because when I was reading your article, I thought this is what we teach, principles of macro students-

Hilt: Yeah.

Beckworth: Double counting is a problem, triple counting a problem.

Hilt: But this is an illustration. National income accounting is hard. It's very, very difficult to get it right. And so there are these hard problems that economists have thought hard about and solved, right? Not perfectly, but we have methods for this. And so you ignore those methods developed by economists at your peril. That's a lesson.

Beckworth: He also argues there were productivity gains in slavery from the intensification of torture or threatening them.

Hilt: That's right.

Beckworth: So what's the response to that?

Hilt: Okay. Well, so this is another reflection of miscommunication and problems across the disciplines. So economic historians have documented very significant productivity increases, particularly in cotton picking, over the two or three decades following 1820. Research has shown that in large measure, those productivity gains are coming from improved varieties of cotton which make picking the bowls easier. Okay. And so the historians who have produced this research, Paul Rhode and his colleague Alan Olmstead, show that those productivity gains are found only in the regions that are adopting these new seed varieties and are not experienced in the sea Island region of the coast of Georgia that continues to use the same variety of cotton seeds throughout that period. Okay. So, there's very clear evidence that there is productivity gains and that they're coming from new seed variety.

Hilt: So, Baptist grabs hold of the productivity gains story and kind of reinterprets it. He completely rejects the analysis of the economic historians who produce it. That was coming from seeds. He hardly acknowledges the possibility of seeds and instead he tells a story of like increased torture, increased whipping of slaves as leading to these productivity gains. To get to that analysis, he's sort of using slave narratives, accounts of what's going on on slave plantations, and very much misrepresenting what is contained in them.

Hilt: I want to be clear. Economic historians are not saying that abusing slaves was somehow unrelated to productivity, right? Slaves were treated very cruelly and that contributed to their productivity. But this incredible productivity gain that's occurring between 1820 and 1850s is not coming from torturing people more. I don't think slaves in the 1820s are treated nicely, whereas slaves in the 1850s are treated horribly, right?

Beckworth: Right.

Hilt: It's that the slaves were picking cotton that was easier to pick.

Beckworth: Okay. Now that explanation from The Economist, that was the development that goes beyond what Fogel and Engerman-

Hilt: Oh, that's a relatively recent finding.

Beckworth: Because Fogel and Engerman back in the '70s, they're arguing it was economies of scale. Right?

Hilt: That's right. So they argue that it's coming from gang labor and so on, and they did show sort of productivity gains as well, that they also don't ascribe to changes in cruelty applied to slavery, but they sort of see it as changes in labor methods, labor organization methods on plantation.

Beckworth: Okay. So the latest thing in the literature is it was these innovations in how you grow your crop, that were made-

Hilt: That's right. Biological innovations which are very interesting. Yes.

Beckworth: Okay. It is interesting reading the Chronicle of Higher Education article on this that there was a debate held at Dartmouth and these two economists whose work was cited by Baptist reused, maybe misused according to him, they were all invited to go there and discuss it and one of them was not very happy there. And he came out swinging at the debate.

Hilt: I think that may have been Alan Olmstead.

Beckworth: Yeah. In the article. And it was fascinating to read, that he came and said, "Look, this person, Baptist has completely misconstrued my work." I can understand that frustration about this didn't show up, but this debate clearly has created some fires, created some interest enough to create a debate at Dartmouth. Whatever happened in that debate? Any follow-up to it? Any interests?

Hilt: I don't know. Unfortunately, I think the gulf between the fields of history and economics is creating an obstacle to making progress on this debate. The fact that economists are the ones criticizing Baptist, is probably somehow improving his credibility among other historians. Right? I've often joked with my colleagues that what we should do is endorse him as economists. That would ultimately be what undermined his credibility among other historians.

Beckworth: Nice. All right. Okay. Another book that you reviewed in your article on slavery was Sven Beckert's 2015 book, *Empire of Cotton: A Global History.* Tell us about that.

Hilt: That's a much broader book. It's a global history of cotton and ultimately the industrial revolution that includes an account of sort of what he describes as different phases of capitalism. So it's very interesting. It's, it's the one book in this new literature that actually takes institutions seriously. He thinks about what we call mercantilism, what Marx called primitive accumulation. He calls that war capitalism, right? And so he putting again violence and expropriation and compulsion at the center of our economic development. But he shares Baptist's view that slavery and slave produced cotton in the United States was absolutely essential for the industrial revolution to occur.

Hilt: This, I think is an important counterfactual that Sven Beckert and Ed Baptist have not sort of considered very carefully. And the reason this is false, so for slavery, American slavery to be essential to the American revolution, it has to be the case that the cotton that American slaves were producing was somehow essential for the American revolution. Okay. But we know-

Beckworth: The Industrial Revolution?

Hilt: Yeah. Sorry, I apologize. The industrial revolution. So we know that cotton was produced in significant amounts on farms without any slaves following the civil war, right? So once slavery is abolished, you get small farms producing cotton in large quantities following the civil war. So we know it's possible to actually produce a fair amount of cotton. And we also know that the American South or parts of the American South are essentially ideal for the production of cotton. So you have this ideal geography, you combine it with free labor instead of slave labor, you can still get a lot of cotton produced.

Hilt: So it seems at least plausible than in a world without American slavery, you could still get the cotton for the American Revolution. American farmers are very responsive to market prices and would probably love to have produced a lot of cotton. Now this raises another interesting issue though, which is why weren't small producers actually growing a lot of cotton under slavery? And the answer is that in regions dominated by small producers like the upland regions of Georgia, there wasn't enough sort of market infrastructure for those farmers to be producing cash crops. That's significant because it's a sign that under slavery, the institutions that were creating these societies was not very favorable to the development of market infrastructure. Okay. So there aren't railroad connections and sort of market places for cash crops in the upland region of Georgia.

Hilt: This is another example of how the institutions of slavery were actually harmful for economic growth. Thinking about that kind of undermines the claim of Baptist and of Beckert that we sort of owe our prosperity today to the industrial revolution and therefore to American slavery.

Beckworth: Well, that's interesting. Makes me think the wealthy slave holders who didn't have an interest in funding this infrastructure development-

Hilt: That's right.

Beckworth: We talked about earlier, it may have just been kind of an unconscious passive thing, but is there any evidence that maybe that was a conscious effort? They knew that if they built that infrastructure it would make maybe these small crop more productive, more accessible to market.

Hilt: That's interesting. I don't know the answer to that. I know that there were among the slave holding elite of the South some boosters for economic development who wanted their slave economies to prosper and did support things like the development of railroads, but at the margin, in regions where the slave owners would not necessarily benefit, there was probably relatively little support for that. And then of course following where you get a new set of institutions, you get northerners funding railroads into these regions and buying up that cotton that gets produced and things change pretty significantly.

Beckworth: I mean, it's pretty standard part of history today where big businesses like to implicitly support regulations or changes in policies that squeeze out little businesses and give them more market share. So it'd be interesting to see if there's any of that back then.

Hilt: Yeah. It's interesting.

Beckworth: But let's move on. The third book was Walter Johnson's 2013, of the title, River of Dark Dreams: Slavery and Empire in the Cotton Kingdom. So what was that one about?

Hilt: That book is different from the other two in that it's written in a way that is sort of closer to traditional history than to economic history. It's prose is more dense and complicated. I sort of see it as a little bit more of an ethnography of the South than in economic analysis. It includes a lot of economic claims and it sort of unwittingly makes a bunch of assertions that economic historians working on slavery have sort of refuted in one way or another. But I think it's less relevant to economists in a way. I've had a brief exchange with him in which he sort of told me he doesn't actually want to be associated with the new historians capitalism. I think he sees himself as more of a Marxist historian.

Beckworth: Okay. All right.

Hilt: Yeah.

Beckworth: Now there have been historians who have written on business history. That's a field, right?

Hilt: Yeah.

Beckworth: And that's more reasonable, that had better work.

Hilt: Well, so business history has been the subfield of history where historians who are interested in economic topics, have sort of found a home. So it was founded by both historians and economists, but it's now populated almost exclusively by historians. They tend to be focused on sort of topics related to businesses and sometimes study individual firms and management and labor practices in firms. But they're also interested in sort of broader economic history questions. I could imagine that in the future business history and the history of capitalism will sort of combine together to be the economic history of the future for historians.

Beckworth: And there's this controversy from economic historians or business historians.

Hilt: That's right.

Beckworth: Okay.

Hilt: Yeah.

Beckworth: Yeah. Fascinating. Let's move to one other area. We're running low on time here, but this is an area I think is near and dear to your heart.

Hilt: That's right.

Beckworth: And this is the history of capitalism on finance, risk and insurance, because you've written on historical financial issues. So tell us about that area.

History of Capitalism: Finance, Risk, and Insurance

Hilt: It's very interesting. Traditionally historians have had very little to say about finance. And now finance is suddenly becoming this really hot topic. So there's a lot of books now written by historians on finance. There's two, I guess I'll quickly mention when we have time. One is a book by Richard White who's a historian at Stanford. It's on the Transcontinentals, it's called Railroaded. So it's a very big and complex book. But the Transcontinentals railroads were created with a huge amount of what we would call today crony capitalism and there are some amazing scandals and abuses of the role of management of those enterprises, including the famous Crédit Mobilier scandal, which encompassed many members of Congress, the Vice President of the United States, the Secretary of the Treasury. So what's really, really great, one of the really great things about that book is from very careful archival research, it painstakingly documents a lot of these interesting scandals. And so if you're interested in the history of corny capitalism in the US or of problems of corporate governance in large enterprises, it's a wonderful book.

Hilt: So another book worth mentioning is a book by Julia Ott called When Wall Street Met Main Street and it's an account of the growing popular participation of just ordinary households and securities markets in the early 20th century, sort of focusing on the ideologies and sort of theories that supported that, which at the time were called the new proprietorship and today we would call the ownership society. So these are both really nice books in that they sort of compliment the work of economic historians in Richard's White's case by painstakingly studying these individual businesses and in Julia Ott's case by studying these sort of ideologies. But I think they also illustrate sort of the limitations of work on economic history that doesn't have any engagement with the work of economists in it.

Hilt: So in Richard White's case, he casts investment bankers, the financiers of these railroads as the villains in his story or among the villains of the story. And it is true that investment bankers in his era did market fraudulent securities, sometimes on a very large scale. But if you think about financial markets and the incentives people have in them, you can't do that repeatedly. You can't sell fraudulent securities over and over and over again to investors. Right? So if these railroads are raising huge amounts of capital over these decades, something is changing to make that happen. And what's changing, and this is what I've found in my own work and other economic historians have shown it too, what's changing is that investment bankers are actually stepping in to police the behavior of railroad managers to stop the fraud, right?

Hilt: So they're not actually the villains in the whole story. They can actually be kind of the heroes. Maybe Richard White's thinking in a way that's analogous to the recent crisis and wants to see the bankers as the villains and was sort of blind to that. In Julie Ott's case like this, she has a story of people investing in the stock market that doesn't talk about stock returns at all. The 1920s is a period of these incredible mania for share prices, particularly after 1927 returns are incredible. That had to have had something to do with people choosing to invest in the stock market. And so she has this difficult problem. There are these ideas about the new proprietorship that are sort of leading people to push households to invest in the stock market. But at the same time you have these amazing returns that are drawing people in and distinguishing between the two stories is hard, I would say.

Beckworth: Okay. Well let's talk about the future.

Hilt: Okay.

Beckworth: We've already touched on maybe, business history and history of capitalism might come together, but what can economic historians learn from these historians and what can the historians learn from the economic historians?

What Can Historians and Economic Historians Learn from Each Other?

Hilt: So I think that you can academic inquiry benefits from different approaches being taken and I think it's naturally beneficial to have historians, using their methods, pursuing their work in ways that reflect their own strengths and economists sort of doing something differently. And so I think that there are sort of natural complementarities. I think historians are uniquely positioned to sort of study sweeping narratives, like the long scope of history and ask questions, that are not really amenable to sort of rigorous economic analysis. Economists on the other hand are probably much better at sort of carefully thinking about causation and conclusively thinking about cause and effect in historical context.

Hilt: I think that economists can learn from historians, historians can learn from economists, but I think that somehow there needs to be a dialogue, that if they're just working in parallel from one another without actually reading each other's work, problems like the ones identified in my paper are going to persist. So somehow we need to have conversations across the disciplines. This is something, of course that's very, very difficult, given the way our incentives, our professional incentives are structured and the way universities are structured. Right? So it's hard, but I hope that it can happen.

Beckworth: Are there any universities where they have seminars where historians and economists come together?

Hilt: There's a few. I spent a year of leave at Yale a couple of years ago and that's one place where there actually are historians and economists talking to one another. But they're very much the exception.

Beckworth: Yeah. We had Peter Conti-Brown on the show.

Hilt: Oh, terrific.

Beckworth: He's a historian and is looking at the Fed and financial regulation. He'd be an example of that, I bet.

Hilt: That's right. Actually his work is a very nice example of the way that the work of historians can complement the work of economists because he does this extremely detailed analysis of the legal basis and institutional structure of the fed and it's a kind of analysis that economists just don't do and don't understand. Right? And so his work sort of brings a depth to the study of the fed that economists would certainly benefit from reading. Right? At the same time he's not trying to estimate optimal monetary responses to shocks or something like that. Right? So there's a nice complementarity there.

Beckworth: I agree. And he's got some fascinating work and he's working on a few more books. Well, let me move in the time left to another article you have written and we can't do it much justice. So we'll have both of your articles on the webpage of SoundCloud. But you have a JPE paper titled, *Economic Effects of Runs on Early 'Shadow Banks': Trust Companies and the Impact of the Panic of 1907.* So I was fascinated to read that there was shadow banking back in 1907. So can you summarize that article for us?

Economic Effects of Runs on Early Shadow Banks

Hilt: Sure. The panic of 1907 is probably the most similar of our historical panics to the panic of 2008 and that's exactly because it originated in the then shadow banks at the time, which were called trust company. So if you think of shadow banking as banking services being performed outside the traditional regulated banking sector, at that time, that meant these relatively unregulated institutions that accepted deposits and made loans and invested insecurities called trust companies. So trust companies originated in the early 19th century as basically fiduciaries. But because they were so weakly regulated, they were sort of utilized to start to perform broader amounts of financial intermediation and by the early 20th century, they were extremely important financial institutions. So a huge part of intermediation was provided through them. In particular, they engaged in financing underwriting services, and all kinds of long-term corporate finance, the sort of stuff that commercial banks were prohibited from doing.

Hilt: So, the panic of 1907 was essentially a run on these trust companies. There were some scandals connected to the management of some of them and the massive, massive runs on them. No one expected that they could be a source of systemic risk. They had no institutions in place to sort of provide emergency liquidity. They weren't members of what was called the New York Clearing House, the Private Clearing House Association at the time. And so what we do in the paper is we sort of study the effects of this shock. We identify the borrowers or the clients of these trusts companies and nonfinancial corporations that use them for underwriting and so on.

Hilt: What we find is following this financial shock, those companies that were differentially exposed to the shock suffered in terms of their investment and profitability and their borrowing costs for at least five years. There's this amazingly persistent effect of this financial shock.

Beckworth: So it sounds very similar to what we went through.

Hilt: Yes.

Beckworth: In terms of persistence as well as severity.

Hilt: Yes.

Beckworth: So one thing that really interests me about shadow banking and something that I learned over the past decade really since this crisis emerged, is how do we properly measure money? So Gary Gorton's work pointed out that shadow banking effectively created institutional money assets for institutional investors. So we think of money, we often or textbooks have [inaudible 00:58:09] the money supply.

Hilt: Right.

Beckworth: That's really retail money assets, where the shadow bank increases institutional money assets. And one of my big takeaways from the crisis is you got to look at both measures of money-

Hilt: That's right.

Beckworth: As a good measure of the money supply. So I'm curious, is there data from that, this period 1907, where you could kind of collect data on the institutional money assets and look at a broad measure of money from back then?

Hilt: You could. So the difficult part of doing that is all of these institutions are chartered by their individual States. So to construct these measures you'd have to go sort of state-by-state and institution-by-institution and try to get that. So it's not like they're part of the national banking system where you can get sort of centralized statistics. So it would be hard, but yes, one could do that.

Beckworth: That would be fascinating to look at.

Hilt: Yeah.

Beckworth: Well, our guest today has been Eric Hilt. Eric, thank you for being on the show.

Hilt: Thank you for having me.